A Debt consolidation loan is when a bank or other financial institution “consolidate” your debts into one easy loan. The bank or financial institution pays off all of your debt from different creditors and you pay monthly payments to the lender.
The pros about a consolidation loan is that it often comes with a low interest rate and a low monthly payment.
There are some dangers in taking on a debt consolidation loan. It is estimated that 70% of all people who take on a debt consolidation loan, use the credit cards that were paid off, within 2 years of consolidating their debt. This means that your monthly bills are high again because you still have your consolidation loan payment on top of all the credit card payments. THIS USUALLY LEADS TO BANCRUPTCY.
This is a good option but you have to learn to live within your means. DON”T OVERSPEND!
Another danger is that people who have accumulated a lot of debt, will not qualify for a debt consolidation loan or may they may not qualify for the ‘teaser’ interest rate as advertised. Also, don’t be late on the payment! If you are late just once, your interest can go from that 2 or 3 percent, up to 19 and 20 percent instantly. This means your payment can double and you will be worse off then before.
Just remember if you are seriously considering a consolidation loan, do your homework, cut up your credit cards and make your payments on time!
